The Government has proposed that Hong Kong's stock exchange launch a new class of shares traded in yuan to enhance capital flows from China and boost turnover in local markets.
According to sources close to the Government, the proposal would allow mainlanders directly to use yuan to buy and sell Hong Kong stocks.
The Government confirmed last night it was in talks with mainland authorities about ways to enhance capital flows between China and Hong Kong.
The confirmation followed a report in the Financial Times that the SAR Government had proposed allowing mainlanders to trade Hong Kong stocks in a bid to boost local turnover.
The plan to allow yuan shares could overcome mainland officials' worries about the volatility of the Chinese currency if large sums of yuan were changed into Hong Kong dollars to trade Hong Kong stocks, a source said.
China has not yet allowed the yuan to float freely and has very strict capital controls.
Sources said the SAR Government hoped allowing yuan shares to list in Hong Kong would enable share trading by mainlanders before the yuan became freely convertible.
